Finance Secretary Carlos Dominguez III said the local automotive industry will continue its “healthy” growth rate even with the proposed adjustments in car excise taxes, given that the manageable price hikes in mass-market vehicles would be readily absorbed by buyers who will, in effect, increase their take-home pay by way of substantially lower personal income taxes.
He said buyers would also hardly feel the effects of the price adjustments for mass market cars such as the Toyota Vios and the Mitsubishi Mirage from the proposed excise tax increase because of the flexible financing schemes offered by car dealers that stretches to as long as seven years for some models, which will become even more affordable amid the country’s low interest-rate regime.
While there may be an initial slowdown in car sales, Dominguez said the industry would be able to quickly recover and continue its robust pace of growth as it did in the past two years, when car sales went up by 25 percent.
“We think that the sales will continue to grow at a healthy rate. With the increasing incomes of people, the drop in the income taxes, you know, [the car industry] can hit very well another 20 percent a year. So, I don't think this will kill the industry, it might slow down the sales, but the sales growth is still going to be very healthy,” said Dominguez at a hearing of the House ways and means committee on Package One of the Comprehensive Tax Reform Program.
“When this package is passed, there will be a reduction in income taxes, so somebody earning half a million pesos (annually) will get to increase his purchasing power by about P27,000. At that time, he can decide: is he going to buy a car, will he put his kid in a better school?” Dominguez added.
Middle-income taxpayers, or those earning between P21,000 and P60,000 a month, will get tax relief ranging from P21,800 to P48,000 per year based on Department of Finance computations.
DOF computations also show that the government stands to gain some P31.4 billion in additional revenues from the automobile excise tax adjustments, according to Finance Undersecretary Karl Kendrick Chua.
The first package of the DOF-proposed tax reform plan is contained in House Bill No. 4774 that was filed last January by Rep. Dakila Carlo Cua, who chairs the House ways and means committee panel.
HB 4774 consists of a significant reduction in personal income tax (PIT) rates plus a corresponding set of revenue-compensating measures, which include lowering the rates for estate and donor’s taxes, expanding the value-added tax (VAT) base but retaining exemptions for senior citizens and persons with disabilities, and adjusting automobile and fuel excise taxes.
Chua, who was also present at the hearing, pointed out for instance, that a Mitsubishi Mirage would be taxed an additional P12,000, but the average car buyer who can afford to purchase this car model would get a tax relief of some P20,000 a year under the tax reform plan.
“In terms of the overall impact, those buying Vios or Innova are also the same people who will benefit significantly from the personal income tax (reductions),” Chua said.
“In summary, once we have seen and taken this excise on automobiles as a package together with the personal income tax, once we consider that there are also many other factors that affect decisions to buy cars, we see that this tax can actually be very progressive, can be affordable and can actually contribute to the [prosperity of our country],” he added.
The DOF has assured Congress that the proposed increase in fuel excise taxes is expected to raise inflation by just 1.5 percent, while adjustments in the automobile tax is not likely to dent the currently strong growth of the local car industry.
DOF estimates show that higher oil prices as a result of the increase in the excise tax on diesel and gasoline may increase overall inflation by just 1.5 percent, while food prices will go up by 1.6 percent only once the proposed first phase of the Comprehensive Tax Reform Program is fully implemented starting in 2018.